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Higher Costs, Regulations and Lack of Farmers Erode Pennsylvania's Dairy Market

Posted on: Tuesday, 12 July 2005, 00:00 CDT

Jul. 10--Take a Sunday drive through Lancaster County's farming country, and you'll see why Pennsylvania remains a giant in the dairy industry: The county is the heart of the industry in a state that is home to 560,000 milk cows.

But Pennsylvania's status as the nation's fourth-largest milk producer is in trouble, as the high cost of land, tough environmental regulations, and a dearth of young farmers have begun eroding its share of the market.

Combined milk production in the Northeast's three biggest dairy states - New York, Pennsylvania and Vermont - dropped by nearly 6 percent between 2000 and 2004. At the same time, it soared by more than 25 percent in Idaho and New Mexico, attracted there by abundant feed crops and cheap, wide-open land that can accommodate huge herds.

"We need to get cracking here. We've got processors who want to expand, but are nervous about it because there might not be enough milk," said Greg Wickham, general manager of Dairy Marketing Services, of Syracuse, N.Y.

Wickham, whose company finds buyers for about half the raw milk produced in the Northeast, has a frontline view of changes in the dairy industry as it migrates West.

At least four dairy-processing plants have closed in Pennsylvania and New York over the last year:

--Kraft Foods Inc. of Northfield, Ill., closed both a cheese plant and a yogurt plant in New York.

--H.P. Hood L.L.C. of Chelsea, Mass., is closing a plant in Lancaster County that bottled milk and made ice cream, because it had capacity in other Northeastern facilities. Hood moved milk production to Rosenberger's Dairies in Hatfield three months ago. Ice cream production is moving this month to a plant in Connecticut.

--Eagle Family Foods Inc. of Columbus, Ohio, this year closed a plant in Wellsboro, Pa., that made sweetened condensed milk, because of tight milk supplies in the Northeast. The company wanted to grow by a third, and executives did not believe they could secure a long-term supply of milk, said chief executive officer Craig Steinke.

Eagle now makes the same products in El Paso, Texas, with most of the milk coming from New Mexico, Steinke said.

For consumers, a raw milk shortage in the Northeast does not mean their grocery store is in danger of running out. Federal regulations put a priority on ensuring the supply of milk for drinking, as opposed to milk for making cheese, ice cream and other dairy products.

Raw milk prices have come off their frothy highs from a year ago of more than $20 per 100 pounds, but, at $14.50, they are still better than they were in 2001 and 2002. Since June 2004, the price for a gallon of whole milk at Brown's ShopRite in the Roxborough section of Philadelphia is down 23 percent, to $3.08.

For Pennsylvania agriculture, though, the stakes are high. Dairy accounts for 42 percent of the state's $4.5 billion in farm revenue, said Pennsylvania Secretary of Agriculture Dennis Wolff.

To help the state's dairy industry reverse its fortunes, Wolff founded the Center for Dairy Excellence in Harrisburg in early 2004 to strengthen existing dairies, encourage large-scale expansion, and attract new dairies.

The center is working against a tide of farmers' leaving the industry at retirement or because they do not want to live with the volatility of the milk market. The number of farms with milk cows in Pennsylvania fell from 10,700 in 2000 to 9,100 last year, a 15 percent drop, according to the U.S. Department of Agriculture.

Pennsylvania's milk production fell by 9.8 percent, from 11.2 billion pounds in 2000 to 10.1 billion pounds last year.

Dairy production has plummeted in New Jersey, too, but the implications are minor because the state has a small dairy industry. California, Wisconsin and New York lead the nation.

One factor the Northeast has going for it is the rising cost of diesel fuel, which is making it increasingly expensive to ship goods across country. "I think we're going to see a trend toward more locally produced everything," said Robert Morris, day-to-day manager of Lanco Dairy Farms Cooperative, which markets milk for 900 farmers in Pennsylvania, Maryland and West Virginia.

USDA figures indicate that Pennsylvania's dairy production has been on an upswing over the last eight months. But it is impossible to say how much of that is a result of the state's efforts.

Duane and Marilyn Hershey, who own the 142-acre Ar-Joy Farm in Chester County, are doing their part. Four years ago they traded an 80-cow operation in a traditional barn for a 500-cow modern dairy.

To get more out of their dairy, they joined the state's "dairy profit team" program, which started last year and brings together their veterinarian, nutritionist, lender and accountant for regular meetings.

"I wish we had started with one right off the bat in 2001," Duane Hershey said. He said having all the players meeting together made it easier to figure out what the problems were and how to fix them.

The first thing the team recognized was that Ar-Joy Farm was not breeding its cows on a regular schedule. "In the last year, we worked hard at changing that," Hershey said. The herd now has 30 to 40 new pregnancies a month, up from less than half of that a year ago.

Regular pregnancies keep cows healthier, Marilyn Hershey said. And that enables them to make more milk.

The Hersheys' cows produce an average of 25,500 pounds of milk per year, well above the Pennsylvania average of 17,904 pounds per year.

Gary Heckman, executive director of the Center for Dairy Excellence, wants to duplicate such success throughout the state. Encouraged by the results from the 10 farms in last year's pilot program, the center added 17 farms this spring and set a goal of adding 40 farms a year through 2008.

If such efforts succeed, Wickham sees plenty of reason for optimism that dairy-product manufacturing will rebound. "Because of the population base and the cost of fuel, there are more plants that want to come into the Northeast or expand there," Wickham said.

Despite the fragile supply situation in the Northeast, Dreyer's Grand Ice Cream Holdings Inc. of Oakland, Calif., is spending $180 million to triple the capacity of its ice cream plant in Laurel, Md. The factory will add Haagen-Dazs to the Edy's and Nestle brands made there.

"It would make it a lot easier if there were more sources in the East," spokeswoman Diane McIntyre said, "but we'll get it done one way or another."

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KFT, MO,

Source: The Philadelphia Inquirer

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